M&A Quarterly Review—3rd Quarter 2022
Middle market M&A activity continued to moderate in Q2 2022
- Deal volume declined 7% YoY to 13,753 during the TTM ended June 2022
- Total deal value shrank by 2% to $376.6 billion during the same period
- Valuation multiples eased to 7.4x TTM adjusted EBITDA in Q2 2022 from 7.5x in the previous quarter
Macroeconomic headwinds started to affect the availability of capital
- Total leveraged loan issuance in the U.S. reached $276.9 billion YTD July 2022, down ~50% YoY
- Cash and liquid securities held by investment grade companies declined by a record 20% YoY in H1 2022
- Buyout firms held $873 billion of dry powder as of June 1, 2022, slightly above the amount at the end of 2021
Economic recovery continues to slip in the face of monetary tightening
- GDP contracted by -0.6% in Q2 2022, marking the beginning of a technical recession
- The LEI declined for the fifth consecutive month as deteriorating key indicators increased the risk of recession
- Consumer confidence and spending plans improved, reversing three consecutive months of decline
M&A activity is likely to continue its slower pace through year-end
- Valuations and volumes will likely finish lower in 2022 as uncertainty reigns
- As pandemic-related stimulus wears off and inflation persists, investors are likely to see more distressed opportunities
- Private equity could put in a floor of sorts for M&A activity because of its size and need to put capital to work
Risks to our view
- Business and consumer confidence turn materially negative
- The Federal Reserve raises rates faster or more than expected
- As winter approaches, Russia’s invasion of Ukraine and other supply constraints cause more severe disruptions
